Contractor License Practice Exam

Which bonding type protects projects against the contractor's inability to complete the work?

1. Performance Bond

2. Bid Bond

3. Payment Bond

4. Permit Bond

The correct answer is: Performance Bond

The correct answer is the performance bond, as it serves the crucial purpose of ensuring that the contractor completes the project according to the contract terms. A performance bond provides a guarantee to the project owner that the work will be finished satisfactorily, addressing concerns that may arise if the contractor fails to fulfill their obligations due to various reasons, such as financial issues, lack of skill, or other unforeseen circumstances. This type of bonding is typically required in construction projects to reassure the owner that there will be a financial assurance covering the costs of hiring another contractor should the original contractor default. The bond amount is often equal to the total contract value, creating a safeguard for the owner against delays and incomplete work. In contrast, a bid bond secures the contractor's bid and ensures that they will enter into a contract if selected, but it does not guarantee project completion. A payment bond assures that subcontractors and suppliers will be paid, protecting their financial interests, but it does not protect against a contractor's failure to complete the work. A permit bond is related to obtaining permits and compliance with local regulations, thus not relevant to project completion assurance at all.